Consider this an add-on to the workbook entitled Whose Lien is It Anyway also known as Volume II Workbook from Garfield Continuum Seminars.
Several Attorneys, especially from California are experimenting with a cause of action in which an instrument is cancelled — because it throws the burden of proof onto the any party claiming the validity or authenticity of the instrument.
I have been researching and analyzing this, and I think they are onto something but I would caution that your pleadings must adopt the deny and discover strategy and that you must be prepared to appeal. There is also a resurgence of tacit procuration doctrines, in which the receiver of communication has a definite duty to respond.
Here is Part I of the analysis: There will be at least one more installment:
Cancellation of Void Instrument
In most cases loans that are later subject to claims of securitization (assignment) are equally subject to cancellation. There are potential defenses to the motion or pleading demanding cancellation of the instrument; but if framed properly, the motion or pleading could be utilized as an advanced discovery tool leading to a final order. This is particularly true if a RESPA 6 (Qualified Written Request) precedes the motion or pleading.
Cancellation of a void instrument is most often directed at a Mortgage or Deed of Trust that is recorded. The elements of cancellation of an instrument include that the document is void (not just the recording). That means that what you are saying is that there is nobody in existence with any legal right, justification or excuse to attempt to use or enforce the document.
I believe that it requires the pleader to allege that the parties on the instrument are unknown to the Pleader in that there never was a financial transaction between the pleader and the the other parties mentioned and accordingly the recording of the document is at best a mistake and at worst, fraud. The element of fraud usually is involved whether you plead it or not. However the same principles and elements might well apply to the following:
Substitution of Trustee
Notice of Default
Notice of Sale
Deed recorded as a result of foreclosure auction
Judgment for Eviction or Unlawful Detainer
Unrecorded instruments like promissory notes, pooling and servicing agreements, and mortgage bonds, credit default swaps etc.
Another word of caution: an existing document carries a certain amount of the appearance of authenticity and validity. That appearance may rise to an informal presumption by a Judge who believes he understands the “facts” of the case. The informal presumption might be elevated by state or federal statute that may describe the presumption as rebutable, or presumed to be rebuttable. In some cases, the rebutable presumption could be elevated to an irrebutable presumption, which might mean that nobody is permitted to challenge the validity or authenticity of the document. But even irrefutable presumptions are subject to challenge if they are procured by deceit or fraud in the inducement, or fraud in the execution.
The scenario assumed here is that no loan receivable was legally created because there was no financial transaction between the homeowner and whoever is on the note, mortgage or whatever document you are seeking to cancel. Where appropriate, the pleader can allege that they deny ever having signed the instrument to that it was signed with expectation that the parties designated as lender, beneficiary or payee never completed the transaction by funding.
It is probably fair to say that presumptions are only successfully challenged if the allegations involve fraud or at least breach of presumed facts or promises. A note is evidence of an obligation and is presumed to validly recite the terms of repayment of a legitimate debt. But it also possible that the note might be evidence of the amount of the obligation, but not its terms of repayment if the facts and circumstances show that the offer was unclear or the acceptance was unclear. In the case of so-called securitized loans, accepting the allegations made by foreclosers, the offer of the loan contained terms that were never communicated to the borrower. This is because an instrument containing the terms of repayment was at material variance with the terms recited in the note. The instrument received by the lender was a mortgage bond. And most importantly the lender and the borrower were never in direct communication with one another.
The interesting effect of the substitution of the mortgage bond for a loan receivable is that the mortgage bond is NOT signed by the homeowner and is no payments of principal and interest are due to the investor except from the REMIC issuing entity that never received any enforceable documents from the homeowner.
Nor were the terms for repayment ever disclosed to the homeowner. And the compensation of the intermediaries was not disclosed as required under TILA. This constellation of factors throws doubt, at the very least, as to whether the closing was ever completed even without the the funding. The fact that the funding never took place from the designated payee or “lender” more or less seals the deal.
You must have at the ready your clear argument that if the “trust” was the lender or any of its investors then the note should have said so and there would be no argument about funding, or whether the note or mortgage were valid instruments. But Wall Street had other plans for “ownership” of the loan and substituted a series a naked nominees or straw-men for their own financial benefit and contrary to the terms expressed to the investor (pension fund) and the homeowner (borrower).
Wire Transfer instructions to the closing agents tell another story. They do not show any indication that the transfer to the closing agent was for the benefit of the designated lender, whose name was simply borrowed by Wall Street banks in order to trade the “loans” as if they were real and as if the banks owned the bonds instead of the trusts or the investors. This could only have been accomplished by NOT having the investors money travel through the REMIC trust. Hence the moment of origination of the obligation took place when the homeowner received the money from the investors through accounts that were maintained by the banks not for the REMICS but for the investors. This means that investors who believe their rights emanate from the origination documents of the trust are mistaken because of the false statements by the banks when they sold the bogus mortgage bonds.
If that is the case, their is no perfected lien, because the only mortgage or deed of trust recorded shows that it is to protect the payee “lender” (actually a naked nominee) in the vent the borrower fails to make payments and otherwise comply with the terms of the note and mortgage. But the note and mortgage relate to an unfunded transaction in which at not time was any party in the alleged securitization chain the source of funds for origination, and at not time was there ever “value received” for any assignments, bogus or otherwise, robo-signed or otherwise.
It also means that the investors must be disclosed and that for the first time the homeowners and pension funds who actually were involved in the transaction, can compare notes and decide on the balance of the obligation, if any, and what to do about it. Allowing the banks to foreclose as servicer, trustee of an asset-backed trust, or in any other capacity is unsupported by the evidence. The homeowner, as in any mortgage foreclosure, is entitled to examine the loan receivable account from the item of origination through the present. If there is agreement, then the possibility of a HAMP or other modification or settlement is possible.
Allowing the servicers to intermediate between the investors and the homeowners is letting the fox into the hen-house. If any deal is struck, then all the money they received for credit de fault swaps and insurance might be due back to the payors, since the mortgages declared in default are actually still performing loans AND at present are not secured by any perfected lien.
Cancellation of the note does not cancel the obligation. In most cases it converts the obligation from one that provided for periodic payments to a demand loan. Success of the borrower could be dangerous and lead the borrower to adopt portions of the note as evidence of the terms of repayment while challenging other parts of the recitals of the note. Cancellation of the note would also eviscerate the promise of collateral which is a separate agreement that offers the home as collateral to secure the faithful performance of the terms of the note. Hence the mortgage or deed of trust would be collaterally canceled merely by canceling the note.
If the note is cancelled, the action can move on to cancel the mortgage instrument. In the context of securitized loans it seems unlikely that there could be any success without attacking both the mortgage, as security, and the note, as evidence of an obligation. In its simplest form, the attack would have the highest chance of success by successfully attacking the obligation. If a lender obtains a note from a borrower and then fails to fund the loan, no obligation arises. It follows logically that the recitals of the note would then be meaningless as would the recitals in the mortgage. Having achieved the goal of proving the instrument as invalid or meaningless, the presence of the instrument in the county recorder’s office would naturally cause damage to other stakeholders and should be cancelled.
If the mortgage is in fact cancelled, then the next logical step might be a quiet title action that would have the court declare the rights and obligations of the stakeholders, thus eliminating any further claims based upon off-record transactions or the absence of actions presumed to be completed as stated in the instrument itself.
It must be emphasized that this is not a collateral attack or a flank attack on the obligation based upon theories of securitization, the pooling and servicing agreement or the prospectus. cancellation of an instrument can only be successful if the party who would seek to use the instrument under attack cannot substantiate that the instrument is supported by the facts.
The facts examined usually include the issues of offer, acceptance and consideration at the time of origination of the instrument under attack. A later breach will most likely not be accepted as reasons for cancellation unless the later event is payment of a debt. Failure to return the cancelled note would be a proper subject of cancellation if the allegation was made that the the obligation was completely satisfied. The presence of the original note after such payment and refusal or inability to return the note as cancelled is reason enough for the court to enter an order canceling the note. Any attempt to sell the note or assign it would be ineffective as against the maker of the note and could subject the assignor to both civil and criminal penalties.
Both payment and origination issues arise in connection with the creation of loan documents. The originator (and any successors) must be able to establish offer, acceptance and consideration. The signature element missing from most of the document chains subjecting all deeds of trusts, notes, mortgages and assignments to cancellation is the lack of consideration.
In a money transaction, consideration means money. If money was not tendered by the originator of the documents despite the requirements to do so as set forth in the documents, the putative borrower or debtor who executed the documents is entitled to cancellation.
In the case of securitized loans, the appearance of propriety is created by reams of documents that cover up the origination documents, giving the appearance that numerous parties agreed that the proper elements were present at the time of the origination of the loan. This has successfully been used by banks to create the informal presumption that the essential elements were present at origination — offer, acceptance and consideration.
The originator (or its successors) can easily avoid cancellation by simply establishing the identity of itself as the lender, the signature of the borrower, and the proof of a cashed check, wire transfer or ACH confirmation showing the payment by the originator to the borrower. In loans subject to claims of securitization and multiple assignments, they cannot do this because the original transaction was never completed.
The issue in securitized loans is that while wire transfer instructions exist and might even mention the borrower by name and could even make reference to the originator, the instructions always include directions on where to send the surplus funds, if any exist. Those funds are clearly not to be given or sent to the originator but rather back to the undisclosed lender, which makes the transaction a table funded loan defined as illegal predatory practices under the Federal Truth in Lending Act.
If the documents named the actual lender, then the offer, acceptance and consideration could be shown as being present. Originators may not “borrow” consideration from a deal between the borrower and another party and use it to establish the consideration for the closing loan documents with the originator. That would create two obligations — the one evidenced by the note and the other evidenced by the mortgage bond, that asserts ownership of the obligation.
Borrowers and creditors are restricted by one simple fact. For every dollar of principal borrowed there must be a dollar paid on that obligation. Putting aside the issue of interest on the loan, the creditor is entitled only to one dollar for each dollar loaned, and the borrower is only required to make a payment on an obligation that is due. The obligation becomes due the moment the borrower accepts the money or the benefits of the money, regardless of whether any documents are drafted or executed. The converse is also true — the creation, and even execution of documents does not create the obligation. It is only the actual money transaction that creates the obligation.
Stripping away all other issues and documentation at the time of origination of the loan, it can fairly assumed that in most of the subject cases of “securitization” that the originator was either not a depository institution or was not acting under its charter as a depository or lending institution. If it was not a lending institution, then it loaned money to the borrower out of its borrowed or retained capital — with the source of funds coming from their own bank account. Based upon a review of hundreds of wire transfer instructions, none of the non-lending institutions was the source of funds, yet their name was used specifically recited in the note as “lender.” The accompanying disclosure documents and settlement statement describes the “lender” as being the named originator. Hence, without funds, no consideration was present. If there was an absence of consideration for the documents that were putatively executed, then the documents are worthless.
The originator in the above scenario lacked two capacities: (1) it could not enforce the note or mortgage because it lacked a loan receivable account that would suffer financial damage and (2) it could not legally execute a satisfaction, cancellation or release of the obligation or the putative lien. Such an originator at the moment of closing is therefore missing the necessary elements to survive a request to cancel the instrument at that time or any other time. No assignments, allonges, indorsements, or even delivery of the loan documents can improve the survival of the loan documents originated, even if some assignee up the chain paid for it.
Yet at the same time that there was no consideration from the originator, there was a loan received by the borrower. If it didn’t come from the originator, and the money actually arrived, the question is properly asked to identify the source of funds and whether that party had the capacity to enforce collection of the loan and could execute a release or satisfaction or cancellation of the note and mortgage. Here is where the hairs split. The source of funds is owed the money regardless of whether there was a note or mortgage or settlement documents or disclosures — simply because they do have a loan receivable that would be damaged by non-payment. But that loan receivable is not supported by any documentation that one would ordinarily find in a mortgage loan.
The creation of documents reciting a false transaction, “borrowing” the fact that the homeowner did receive funds from another source, does NOT create a second obligation. Hence the note, mortgage (Deed of trust) and obligation presumed in favor of the named originator must be cancelled.
Since the sources of funds are neither the owner of the loan, the payee on the note, the lender identified on the note, mortgage and settlement documents, they lack the power to enforce any of those documents and secondly, lack the power to cancel, release or satisfy a note or mortgage on which they are not the payee or secured party. Hence the fact that the borrower received funds gives rise to a demand obligation against the borrower to repay the loan. All the funding source needs is evidence of the payment from their bank account and the receipt by the borrower.
Filed under: foreclosure, Investor, CDO, Eviction, CORRUPTION, securities fraud, currency, Mortgage, GTC | Honor, bubble | Tagged: Mortgage, discovery, quiet title, note, DEED OF TRUST, Substitution of Trustee, perfected lien, cancellation of instrument, incomplete transactions, unfunded obligation | 15 Comments »